Car Loan or Personal Loan: Which is Better for You?

Buying a car is often a necessity, not a luxury. Whether you commute, enjoy your free time, or support your work, a reliable vehicle makes life easier. A loan lets you get the car you need without stretching your budget by paying the full amount up front.

The question is which loan is better for you: a car loan or a personal loan. The short answer depends on your budget, credit score, and the kind of car you want.

A car loan is a better choice if you are buying a new or almost new car and want lower interest rates. A personal loan is better if you are buying an older car, need extra money for repairs or upgrades, or want to avoid the risk of losing your car if you miss payments.

This guide explains how each loan works, breaks down costs and benefits, and offers practical advice to help you pick the loan that best fits your budget and goals.

How Is a Car Loan Different from a Personal Loan?

They may seem interchangeable at first glance. But when you look deeper, the structure of a car loan or personal loan can affect everything from your approval chances to your total cost.

What is a Car Loan?

A car loan is a type of secured personal loan. The car you're buying acts as the security. If you default, the lender can repossess it.

That security reduces the lender’s risk. And with less risk comes lower interest rates.

What is a Personal Loan?

A personal loan is typically unsecured. That means there’s no asset tied to the loan.

As a result, lenders charge higher interest rates to offset the risk. But the upside is you can use the funds however you like.

Key Differences in Interest Rates for Car Loans vs. Personal Loans

Here’s how your credit score impacts what you pay:

Car Loans

• Superprime (750+ score): ~5.25% APR

• Subprime (600–699): 15–20% APR

Personal Loans

• Excellent credit: From 6.49% APR

• Low credit: Can hit 35.99% APR

Example: For a $20,000 loan over 5 years:

• Car loan: At 10%, you'll pay $5,496 in interest

• Personal loan: At 20%, you'll pay $11,793 in interest

The secured car loan saves over $6,000. That’s the benefit of asset-backed lending.

Car vs Personal Loan: Pros and Cons

Feature	Car Loan	Personal Loan
Secured?	Yes (Car is collateral)	Usually not
Interest Rates	Lower (from 5% p.a.)	Higher (6.5%–35.9%)
Loan Amount	Limited to car’s value	Flexible use
Flexibility	Only for car purchase	Mods, rego, other costs
Approval Speed	Fast if new car	Slower if low credit
Repossession Risk	Yes	No
Loan Use	Vehicle only	Open-ended

Car Loan vs Personal Loan: Which is Better for You?

Let’s look at this with a few practical questions.

What car are you buying?

If it’s new or nearly new, go for a car loan. Rates are better, and approval is faster.

For older cars or high-mileage vehicles, lenders might not approve a secured loan. In that case, go for a personal loan.

Need extra cash for upgrades or repairs?

A personal loan allows you to consolidate all your expenses into one. Car loans only cover the car's purchase price.

Concerned about repossession?

Then, an unsecured personal loan gives peace of mind. There’s no asset at stake here.

Got a credit score below 600?

Your best option is a secured car loan. It’s easier to get approved and comes with lower comparison rates.

For special scenarios

• Buying an EV? Some lenders now offer green loans that cover car and a charging setup.

• Buying from a private seller? A personal loan may be simpler than dealer-based car finance.

The right choice depends on your full financial situation, not just the car itself.

Case Study 1: Why Choose a Car Loan Over a Personal Loan?

• The Player: Tom, 29, Sydney

• Job: IT Project Manager

• Credit Score: 720

• Goal: 2023 Mazda CX-5 ($42,000)

Tom wanted manageable monthly repayments but was wary of dealership finance traps. He considered a personal loan for the freedom, but the high interest rates on personal loans made him think twice.

Why the car loan won him over:

• Brand-new car = strong secured loan candidate

• Score landed him a 6.34% rate

• Fixed repayments of $789/month fit his budget

• Avoided balloon payments and locked-in early repayment options

Had he picked a personal loan, he’d have paid $8,200 more in interest.

Secured loans aren’t scary if you’re disciplined. Here, Tom saves around $136/month versus a personal loan!

Case Study 2: Why Choose a Personal Loan Over a Car Loan?

• The Player: Maya, 26, Melbourne

• Job: Freelance Photographer

• Credit Score: 650

• Goal: Used Toyota Hilux ($28k) + $7k in 4WD mods

The issue is… Maya’s Hilux was too old for secured car finance. Her credit score meant high rates. But she needed extra funds to actualise an upgrade.

Why the personal loan worked better:

• No age limits on vehicles

• Borrowed $35k for both car and mods

• Found a 14% rate through a credit union

• Made extra repayments to close the loan early

She avoided the pain of having two loans and saved $3,700 in interest with a single facility. Plus, there's no repossession anxiety!

How Fintell Finance Can Help You Decide

Still not sure if a car loan or personal loan suits your situation best? That’s what we do.

At Fintell Finance, we take time to understand your car plans, your credit score, and your lifestyle goals. Whether you're buying a new or used car, borrowing for extras, or juggling a side hustle, our experts help you compare loans without the stress.

We cut through comparison rates, break down repayments, and find you options with:

• Low interest rates

• Early repayment flexibility

• Fixed or variable rate choices

• No surprise exit fees

We’re local, transparent, and personal. And we’re with you from pre-approval to post-purchase peace of mind.

If you want tailored car finance advice, contact Fintell Finance today.

If you're buying a new or near-new car and want lower interest rates, a secured car loan is usually better. Rates can start from 5.25% p.a. for high credit scores. Personal loans are better for older vehicles or when you need extra funds beyond the car's value. Just note: unsecured personal loans tend to attract higher rates, often 6.49% to 35.99% depending on your credit standing.